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COUNTRY BANKERS INSURANCE CORPORATION v. ANTONIO LAGMAN

FACTS:

The case involves a dispute regarding the validity and effectivity of surety bonds issued by Country Bankers Insurance Corporation (Country Bankers) in favor of the National Food Authority (NFA) and its former administrator, Romeo Lagman. Nelson Santos applied for a license with the NFA to engage in the business of storing palay in his warehouse, with the approval conditional upon posting a bond. Country Bankers issued two warehouse bonds and Santos secured a loan using his warehouse receipts as collateral. When Santos defaulted on his payment, Country Bankers was compelled to pay and filed a complaint against Lagman, the surety, and other co-signors. The trial court held Lagman and Reguine jointly and severally liable to pay Country Bankers and Lagman appealed to the Court of Appeals, which ordered the dismissal of the complaint against him. The Court of Appeals held that the 1990 Bond superseded the 1989 Bonds and that Lagman was not a signatory to the alleged Indemnity Agreement covering the 1990 Bond.

Country Bankers argues that the 1989 Bonds are continuing bonds, which can only be cancelled by the NFA, and questions the existence and validity of the 1990 Bond. They also assert that the receipts issued for the 1989 Bonds only serve as evidence of premium payments and do not determine their period of effectivity. On the other hand, Lagman argues that the 1989 Bonds have expired and were superseded by the 1990 Bond, to which he is not a party. The Court of Appeals held that the 1989 Bonds were effective for only one year based on the receipts of premium payments. However, the Supreme Court disagreed, stating that the effectivity of the bonds is not solely dependent on premium payments and cited the provision in the Insurance Code that states the premium should be paid upon perfection and delivery of the surety bond.

ISSUES:

  1. Whether the 1989 Bonds were superseded by the 1990 Bond.

  2. Whether the 1989 Bonds were effective for only one year based on the receipts for payment of premiums.

  3. Whether Lagman can be held liable under the Indemnity Agreements related to the 1989 Bonds.

RULING:

  1. The 1990 Bond does not supersede the 1989 Bonds.

  2. The 1989 Bonds are not limited to one year based on the receipts for payment of premiums.

  3. Lagman is liable under the Indemnity Agreements related to the 1989 Bonds, as the 1989 Bonds were continuing and not validly superseded by any subsequent bond.

PRINCIPLES:

  • Continuing Bond and Section 177 of the Insurance Code The bond may only be canceled by the obligee, by the Insurance Commissioner, or by a competent court.

  • Best Evidence Rule Secondary evidence is inadmissible unless it is shown that the original document is unavailable.

  • Novation Requires a previous valid obligation, a valid new contract, and the agreement of the parties concerned, with the old contract being extinguished.

  • Incontestability Clause in Indemnity Agreements Obligates the indemnitor to reimburse the surety for any payments made, without contesting the liability.